General Electric Co. said Oct. 7 that it would freeze its pension plan for approximately 20,000 U.S. employees with salaried benefits, effective Jan. 1, 2021, as part of its strategy to reduce debt and improve its balance sheet.
The industrial conglomerate also aims to freeze supplementary pension benefits for an estimated 700 U.S. employees who became executives before 2011, according to a company release. Retirees already receiving pensions benefits or employees entitled to production benefits are unaffected by the announced changes.
In addition to the pension plan freeze, GE will also offer a limited-time lump-sum payment option to 100,000 eligible former employees who have yet to start collecting their monthly pension payments.
GE will also prefund approximately $4 billion to $5 billion of its estimated minimum funding requirements for 2021 and 2022 under the Employee Retirement Income Security Act by using a portion of the $38 billion cash proceeds from various asset sales.
The company expects to record a noncash, pretax curtailment charge in the fourth quarter in connection with the pension plan freeze and another noncash pension settlement charge in the same quarter following the distribution of the offered lump-sum pension payments.
GE said the announced moves are expected to cut its pension deficit by approximately $5 billion to $8 billion and lower its industrial net debt by about $4 billion to $6 billion.
"Returning GE to a position of strength has required us to make several difficult decisions, and today's decision to freeze the pension is no exception," said Kevin Cox, GE's chief human resources officer.
The company said it is "on track" in its deleveraging plan and expects to make "significant" progress toward its industrial leverage target of less than 2.5x net debt-to-EBITDA by the end of 2020.
GE continues to grapple with concerns surrounding its power segment, negative cash flow and debt accumulation. Earlier in February, GE CEO H. Lawrence Culp Jr. said he will prioritize reducing debt and strengthening the troubled power unit in a bid to reassure investors.
